Elevating China - Vietnam Economic and Trade Relations

Chinese corporate investment in Vietnam is mainly concentrated in manufacturing, with both investment value and project volume steadily increasing. This sector has emerged as a key driver of Vietnam's economic growth. To find out more, our reporter has an interview with Mr. Sun Feng Lei, Chairman of the China Chamber of Commerce in Vietnam.

Chinese businesses account for a large share of Vietnam's total FDI capital, with both projects and technological content tending to grow rapidly. Could you tell us why Chinese companies choose Vietnam as an investment destination?

Vietnam has a favorable geographical location, shares the border with China and lies close to other ASEAN countries. Vietnam has convenient sea and land transportation, greatly enabling commodity flow and supply chain management. At the same time, as an important link in the Belt and Road Initiative, the country has brought opportunities to domestic companies and to economic development. By fostering strong collaboration with China, Vietnam drives infrastructure development, industrial modernization and bolsters its competitive edge in both regional and global markets.

In recent years, Vietnam's GDP growth has been among the highest in Southeast Asia. The huge young labor market and rapidly growing middle class not only provide a stable source of human resources for the manufacturing industry but also bring sustainable vitality to the consumer market. The Vietnamese government welcomes foreign-invested companies and attracts investment through tax exemptions and land incentives. The long-standing friendship and cooperation between China and Vietnam have also created a good environment for Chinese companies.

In addition, Vietnam's production costs are globally competitive, which has become an important reason for attracting foreign investment. With the effectiveness of the Regional Comprehensive Economic Partnership (RCEP), Vietnam has further integrated into the regional economy, reduced tariffs and improved trade facilitation to bring more opportunities of China-Vietnam economic and trade cooperation.

Changes in global supply chains have also made Vietnam a popular choice for industrial transfers. As China's manufacturing is shifted abroad, Vietnam stands out with its stable political environment and complete industrial support infrastructure. Chinese corporate investment in Vietnam not only enhances the global economic landscape but also injects fresh energy into bilateral economic relations between China and Vietnam, fostering mutually beneficial outcomes.

What are the primary industries or sectors in which Chinese companies invest in Vietnam?

Currently, Chinese investment in Vietnam is mainly engaged in the manufacturing sector. The share of investment capital and the number of projects in this sector has kept rising to become an important driving force for Vietnam's economic development. Especially in the electronics and electrical manufacturing sector, Vietnam has gradually become an important base for global electronics production. Many well-reputed Chinese companies have established manufacturing plants and supply chain centers in Vietnam to take advantage of the cost and convenience of the regional market in Vietnam to significantly enhance their product competitiveness. The textile and garment industry is also an important investment approach for Chinese companies which are increasing investment in machinery and equipment manufacturing, which in turn strongly supports upgrading Vietnam's industry.

In infrastructure construction, Chinese companies, relying on their technological advantages and financial capabilities, are actively joining transportation and energy projects in Vietnam. Building transportation facilities such as roads, railways, bridges and ports not only improves regional logistics but also strengthens economic connectivity between China and Vietnam. At the same time, the participation of Chinese companies in energy projects such as hydropower, wind power and solar power has helped Vietnam optimize its energy structure and contributed to green development goals.

China’s investment has also been channeled into the financial and service industries in Vietnam. Major Chinese banks have established their branches in Vietnam to provide cross-border financing and trade settlement services for companies and support the steady growth of bilateral trade and investment. Additionally, with the rapid e-commerce development in Vietnam, Chinese logistics and e-commerce companies have helped Chinese products penetrate Vietnamese and ASEAN markets more fruitfully by optimizing their distribution networks and building a strong cross-border supply chain.

Their investment in science, technology, information and communications technology (ICT) has also grown rapidly. Technical support from Chinese companies in software development and digital transformation has enabled Vietnamese companies to improve business performance and further bolster regional scientific and technological cooperation. By stepping up efforts in these areas, Chinese companies not only meet Vietnam's economic development needs but also strengthen China-Vietnam cooperation in industrial chains and supply chains, thus producing benefits for both sides.

August 2024, Vietnamese Party General Secretary and President To Lam and his Chinese Counterpart Xi Jinping jointly witness the signing of a number of bilateral cooperation documents after holding talks in Beijing, China 

What are the key advantages and challenges faced by Chinese companies in investment, production, and business operations in Vietnam?

Firstly, Vietnam shares a border with China. Its unique geographical advantages and convenient sea and road transportation empower Chinese companies to quickly establish efficient supply chain networks. Well-established cross-border transportation channels between China and Vietnam allow Chinese companies to seamlessly connect their production and sales networks with ASEAN and global markets. At the same time, Chinese companies have completed and developed industrial chains in many industries and can quickly transfer technology, equipment and management experience to Vietnam, enabling them to achieve production localization goals. This global competitiveness is especially prominent in electronics, textile and garment, machinery, and other industries to generate a complementary effect with industries in Vietnamese localities.

Furthermore, Chinese companies have strong advantages in capital and technology research and development, provide Vietnam with modern production equipment and technical support, and foster domestic industrialization and technological upgrading. The “Belt and Road” Initiative and related support policies have afforded diverse financial channels and cooperation opportunities for Chinese companies. In addition, as a RCEP member, Vietnam enjoys preferential multilateral trade policies. Chinese companies can further expand their market share in ASEAN and international markets through Vietnam. Similarities in culture and language also reduce barriers to cross-cultural communications and help Chinese companies localize more quickly in Vietnam.

Chinese companies also face a lot of challenges in Vietnam. For example, differences in Vietnam's legal and regulatory systems may increase compliance costs and operational risks. Besides, although Vietnam's labor costs are cheap, the limited number of skilled workers and high labor mobility in some industries affect business performance and stability. At the same time, Vietnam's infrastructure such as transportation, logistics and electricity needs to be further upgraded to enhance companies’ production and supply chains. Vietnam has attracted a huge amount of investment from Japan, South Korea, Europe, the United States and other economies, while competition is becoming fiercer. The rapid development of Vietnamese enterprises has posed challenges to foreign-invested companies.

To achieve sustainable development in Vietnam, Chinese companies need to utilize their capital, technology and industrial chain, combined with the potential of the Vietnamese market. Simultaneously, they need to pay attention to Vietnamese legal and regulatory developments, strengthen compliance management and mitigate operational risks through cross-border legal services. By cultivating local talents, enhancing cultural integration and building a good social reputation, Chinese companies can win the trust of the market. By broadening cooperation with the Vietnamese government, businesses and communities and capturing opportunities in regional economic cooperation such as RCEP, Chinese companies will be able to maintain sustainable growth amid fierce competition and bring China-Vietnam economic and trade relations to a new level.

What measures should Vietnam implement to enhance its investment climate and attract more foreign investors, including Chinese companies?

Vietnam can continue to enhance its investment environment and increase its attractiveness by optimizing policies and regulations. For example, it needs to ensure transparent and stable policies, ease uncertainties caused by frequent changes, simplify administrative approval processes, and provide investors with more efficient and convenient services. At the same time, Vietnam also needs to strengthen intellectual property protection mechanisms and bolster business confidence in the technology sector.

In infrastructure, Vietnam must increase investment in transportation, logistics and energy, and improve transportation networks such as ports, roads and railways to diminish operating costs. Into the bargain, digital infrastructure development such as 5G networks and data centers will provide more support for cross-border e-commerce and technology companies, hence further enhancing its attractiveness.

Regarding tax and market access, Vietnam can offer more attractive tax incentives, relax restrictions on foreign investment in service and high value-added industries, and further open up the market. Additionally, in response to the challenges faced by foreign-invested enterprises, the Vietnamese government could strengthen communication mechanisms with businesses to promptly resolve issues and enhance trust among foreign investors.

With the above measures, combined with policy benefits coming from regional economic cooperation and Vietnam's favorable geographical location, Vietnam will be able to attract more high-quality foreign investment and underpin sustainable economic development.

Would you share the future investment trends of Chinese companies in Vietnam?

Investment trends of Chinese companies in Vietnam will be more diversified and higher-class in the coming time. As Vietnam's economy continues to grow and market demand continues to change, Chinese companies will increase their investment in high-end manufacturing industries, especially high-tech industries such as electronics, new energy and smart manufacturing. These areas not only fit global industrial upgrading trends but also bring Chinese companies higher profit margins and market prospects.

In addition, with global environmental requirements and green development needs, Chinese corporate investment in Vietnam will gradually shift to sustainable development in the future, especially in new energy, environmental technology, green construction and other industries. The advent of Chinese new energy companies in Vietnam will become increasingly important, especially in wind power and solar power. Chinese companies will use their technological and financial advantages to foster Vietnam's green energy transformation and renewable energy development.

Furthermore, with the continuous growth of Vietnam's middle class and the expansion of the consumer market, Chinese companies' investment in Vietnam will also focus more on service and consumer industries. Retail, e-commerce, logistics and other sectors will become a new investment craze, especially in cross-border e-commerce and logistics. Chinese companies will be able to further expand their business relationships with Vietnamese and Southeast Asian markets through digital platforms and supply chain networks.

Finally, with the growing political and economic cooperation between China and Vietnam, Chinese corporate investment in Vietnam will focus more on local development and social responsibility. Concerning talent training, cultural integration and environmental protection, Chinese companies will pay more attention to working closely with local governments, communities and employees to achieve more long-term sustainable development and win-win outcomes.

Thank you so much!

By Lan Anh, Vietnam Business Forum